EXHIBIT 04.02
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID")
AS DEFINED BY SECTION 1273(a)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE FOLLOWING INFORMATION IS
PROVIDED PURSUANT TO THE INFORMATION REPORTING REQUIREMENTS
SET FORTH IN TREASURY REGULATION 1.1275-3.
THE ISSUE PRICE OF THIS DEBT INSTRUMENT IS $[________].
THE AMOUNT OF OID ON THIS DEBT INSTRUMENT IS $[________].
THE ISSUE DATE OF THIS DEBT INSTRUMENT IS [_______], 1999
THE PER ANNUM YIELD TO MATURITY OF THIS DEBT INSTRUMENT
IS [___]% COMPOUNDED SEMI-ANNUALLY.
JBI APPAREL, INC.
13% Senior Subordinated Note
Due December 31, 2001
$[__________] [_______], 1999
JBI APPAREL, INC. (hereinafter called the "Company"), a
Massachusetts corporation and an indirect wholly-owned subsidiary of J. Baker,
Inc., a Massachusetts corporation ("J. Baker"), for value received, hereby
promises to pay to [_________] ("Purchaser"), or registered assigns, the
principal sum of [AMOUNT IN WORDS] DOLLARS ($[________]), on December 31, 2001
and to pay interest (computed on the basis of a 360-day year consisting of
twelve 30-day months) from the date hereof on the unpaid principal amount hereof
at the rate of 13% per annum semi-annually in arrears on June 30 and December 31
of each year (each said day being an "Interest Payment Date"), commencing on
June 30, 1999, until the principal amount hereof shall have become due and
payable, whether at maturity or by acceleration or otherwise, and thereafter at
the rate of 15% per annum on any overdue principal amount and (to the extent
permitted by applicable law) on any overdue interest until paid.
All payments of principal and interest on this Note shall be
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for payment of public and private debts.
On any Interest Payment Date on or after June 29, 2001, the
Company shall pay any amount of accrued original issue discount on this Note as
shall be necessary to ensure that this Note shall not be considered an
"applicable high yield discount obligation" within the meaning of Section 163(i)
of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor
provision. The amount of principal payable on this Note shall be reduced by the
amount of any accrued original issue discount that is paid pursuant to this
paragraph.
If any payment on this Note is due on a day which is not a
Business Day, it shall be due on the next succeeding Business Day. For purposes
of this Note, "Business Day" shall mean any day other than a Saturday, Sunday or
a legal holiday or day on which banks are authorized or required to be closed in
Boston or New York.
1. The Note. This Note is issued pursuant to and is subject to the terms
and provisions of the Securities Purchase Agreement dated as of May 19, 1999
(the "Purchase Agreement"), among J. Baker, the Company and the several
purchasers named on Schedule I thereto and the terms of this Note include those
stated in the Purchase Agreement. As used herein, the term "Note" or "Notes"
includes this 13% Senior Subordinated Note due December 31, 2001 of the Company
originally so issued and any 13% Senior Subordinated Note or Notes due December
31, 2001 subsequently issued upon exchange or transfer thereof.
2. Transfer, Etc. of Notes. The Company shall keep at its office or agency
maintained as provided in paragraph (a) of Section 7 a register in which the
Company shall provide for the registration of this Note and for the registration
of transfer and exchange of this Note. The holder of this Note may, at its
option, and either in person or by its duly authorized attorney, surrender the
same for registration of transfer or exchange at the office or agency of the
Company maintained as provided in Section 7 and, without expense to such holder
(except for taxes or governmental charges imposed in connection therewith),
receive in exchange therefor a Note or Notes each in such denomination or
denominations (in integral multiples of $100,000) as such holder may request,
dated as of the date to which interest has been paid on the Note or Notes so
surrendered for transfer or exchange, for the same aggregate principal amount as
the then unpaid principal amount of the Note or Notes so surrendered for
transfer or exchange, and registered in the name of such person or persons as
may be designated by such holder. Every Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or shall be
accompanied by a written instrument of transfer, satisfactory in form to the
Company, duly executed by the holder of such Note or its attorney duly
authorized in writing. Every Note so made and delivered in exchange for such
Note shall in all other respects be in the same form and have the same terms as
such Note. No transfer or exchange of any Note shall be valid (x) unless made in
the foregoing manner at such office or agency and (y) unless registered under
the Securities Act of 1933, as amended, or any applicable state securities laws
or unless an exemption from such registration is available.
3. Loss, Theft, Destruction or Mutilation of Note. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note, and, in the case of any such loss, theft or destruction, upon receipt
of an affidavit of loss and an indemnity reasonably acceptable in form and
substance to the Company from the holder thereof, or, in the case of any such
mutilation, upon surrender and cancellation of this Note, the Company will make
and deliver, in lieu of this Note, a new Note of like tenor and unpaid principal
amount and dated as of the date to which interest has been paid on this Note.
4. Persons Deemed Owners; Holders. The Company may deem and treat the
person in whose name this Note is registered as the owner and holder of this
Note for the purpose of receiving payment of principal of and interest on this
Note and for all other purposes whatsoever, whether or not this Note shall be
overdue. With respect to any Note at any time outstanding, the term "holder", as
used herein, shall be deemed to mean the person in whose name such Note is
registered as aforesaid at such time.
5. Prepayments.
(a) Optional Prepayment. Subject to any applicable restrictions contained
in the Credit Agreement (as hereinafter defined), upon notice given as provided
in Section 5(b), the Company may, at its option, prepay this Note, without
premium or penalty, as a whole at any time or in part from time to time in
principal amounts which shall be $100,000 or integral multiples thereof,
together with any accrued and unpaid interest thereon through the date of such
prepayment.
(b) Notice of Prepayment. The Company shall give written notice of any
prepayment of this Note or any portion hereof pursuant to Section 5(a) not less
than 20 nor more than 60 days prior to the date fixed for such prepayment. Such
notice of prepayment and all other notices to be given to the holder of this
Note shall be given by registered or certified mail to the person in whose name
this Note is registered at its address designated on the register maintained by
the Company on the date of mailing such notice of prepayment or other notice.
Upon notice of prepayment being given as aforesaid, the Company covenants and
agrees that it will prepay, on the date therein fixed for prepayment, this Note
or the portion hereof, as the case may be, so called for prepayment, at the
prepayment price determined in accordance with Section 5(a) hereof. A prepayment
of less than all of the outstanding principal amount of this Note shall not
relieve the Company of its obligation to make scheduled payments of interest
payable in respect of the principal remaining outstanding on the Interest
Payment Dates.
(c) Allocation of All Payments. In the event of any partial payment of less
than all of the interest then due on the Notes then outstanding or any
prepayment, purchase, redemption or retirement of less than all of the
outstanding Notes, the Company will allocate the amount of interest so to be
paid and the principal amount so to be prepaid, purchased, redeemed or retired
to each Note in proportion, as nearly as may be, to the aggregate principal
amount of all Notes then outstanding.
(d) Interest After Date Fixed for Prepayment. If this Note or a portion
hereof is called for prepayment as herein provided, this Note or such portion
shall cease to bear interest on and after the date fixed for such prepayment
unless, upon presentation for such purpose, the Company shall fail to pay this
Note or such portion, as the case may be, in which event this Note or such
portion, as the case may be, and, so far as may be lawful, any overdue
installment of interest, shall bear interest on and after the date fixed for
such prepayment and until paid at the rate per annum provided herein for overdue
amounts.
(e) Surrender of Note; Notation Thereon. Upon any prepayment of a portion
of the principal amount of this Note, the holder hereof, at its option, may
require the Company to execute and deliver at the expense of the Company (other
than for transfer taxes, if any), upon surrender of this Note, a new Note
registered in the name of such person or persons as may be designated by such
holder for the principal amount of this Note then remaining unpaid, dated as of
the date to which the interest has been paid on the principal amount of this
Note then remaining unpaid, or may present this Note to the Company for notation
hereon of the payment of the portion of the principal amount of this Note so
prepaid.
6. Offer to Repurchase Upon a Change of Control. Subject to any applicable
restrictions in the Credit Agreement with respect to paragraph (a) below:
(a) Upon the occurrence of a Change of Control (as hereinafter defined),
the holder of this Note shall have the right, at such holder's option, to
require the Company to repurchase all or any part of such holder's Note in
amounts which shall be in integral multiples of $100,000 pursuant to the offer
described below, at a purchase price equal to 101% of the principal amount
thereof so to be repurchased, plus accrued and unpaid interest, if any, to the
date of purchase (a "Change of Control Payment"). Within 10 Business Days after
the Company knows, or reasonably should know, of the occurrence of any Change of
Control, the Company shall make an irrevocable, unconditional offer (except that
such offer may be conditioned upon the closing of the transaction constituting
the Change of Control) (a "Change of Control Offer") to all holders of the Notes
to purchase all of the Notes for cash in an amount equal to the Change of
Control Payment by sending written notice (the "Change of Control Notice") of
such Change of Control Offer to each holder by registered or certified mail to
the person in whose name the Note is registered at its address maintained by the
Company on the date of the mailing of such notice. The Change of Control Notice
shall contain all instructions and materials required by applicable law and
shall contain or make available to the holder other information material to such
holder's decision to tender this Note pursuant to the Change of Control Offer.
The Change of Control Notice, which shall govern the terms of the Change in
Control Offer, shall state:
(i) that the Change of Control Offer is being made pursuant to
this Section 6, and that all Notes validly tendered will
be accepted for payment;
(ii) the Change of Control Payment (including the amount of
accrued and unpaid interest) and the purchase date, which
will be no later than 30 days from the date such notice is
mailed (the "Change of Control Payment Date");
(iii) that any Note not validly tendered will continue to accrue
interest;
(iv) that, unless the Company defaults in the payment of the
Change of Control Payment, any Note accepted for payment
pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Payment Date;
(v) that holders electing to have a Note, or portion thereof,
purchased pursuant to a Change of Control Offer will be
required to surrender the Note to the Company at the
address specified in the notice not later than the close
of business on the Business Day prior to the Change of
Control Payment Date;
(vi) that holders will be entitled to withdraw their election
if the Company receives, not later than the close of
business on the second Business Day prior to the Change of
Control Payment Date, a telegram, facsimile transmission
or letter setting forth the name of the holder, the
principal amount of the Note delivered for purchase and a
statement that such holder is withdrawing its election to
have such principal amount of Note purchased; and
(vii) that holders whose Notes are being purchased only in part
will be issued a new Note equal in principal amount to the
unpurchased portion of the Note surrendered, which
unpurchased portion must be equal to $100,000 in principal
amount or an integral multiple thereof.
On or before the Change of Control Payment Date, the Company
shall (i) accept for payment the Notes or portions thereof validly tendered
pursuant to the Change of Control Offer prior to the close of business on the
Change of Control Payment Date, (ii) promptly mail to the holders of Notes so
accepted payment in an amount equal to the Change of Control Payment (including
accrued and unpaid interest) for such Notes, and the Company shall promptly mail
or deliver to such holders a new Note equal in principal amount to any
unpurchased portion of the Note surrendered; provided, that each such new Note
will be in a principal amount of $100,000 or an integral multiple thereof. Any
Notes not so accepted shall be promptly mailed or delivered by the Company to
the holder thereof.
(b) In the event of a Change of Control, the Company will promptly, in good
faith, (i) seek to obtain any required consent of the holders of any Senior
Indebtedness (as defined herein) to permit the Change of Control Offer and the
Change of Control Payment contemplated by this Section 6, or (ii) repay some or
all of such Senior Indebtedness to the extent necessary (including, if
necessary, payment in full of such Senior Indebtedness and payment of any
prepayment premiums, fees, expenses or penalties) to permit the Change of
Control Offer and the Change of Control Payment contemplated hereby without such
consent. Failure to comply with the foregoing shall not relieve the Company from
its obligations pursuant to paragraph (a) above.
(c) For purposes of this Note "Change of Control" means (i) the sale, lease
or transfer, whether direct or indirect (other than by way of merger or
consolidation), of all or substantially all of the assets of (A) J. Baker and
its subsidiaries, taken as a whole or (B) the Company and its subsidiaries,
taken as a whole, in one transaction or a series of related transactions, to any
"person" or "group," (ii) the liquidation or dissolution of J. Baker or the
Company or the adoption of a plan of liquidation or dissolution of J. Baker or
the Company, (iii) the acquisition of "beneficial ownership" by any "person" or
"group" of securities of J. Baker or the Company representing more than 50% of
the combined voting power of all then outstanding securities entitled to vote
generally in elections of directors of J. Baker or the Company, as the case may
be, or any successor entity ("Voting Stock"), by way of sale, transfer or
issuance of or a series of sales, transfers and/or issuances of Voting Stock or
otherwise, (iv) any merger or consolidation to which J. Baker or the Company is
a party, except for a merger or consolidation in which the holders of J. Baker's
or the Company's outstanding Voting Stock, as the case may be, entitled to elect
a majority of the J. Baker's Company's Board of Directors, as the case may be,
immediately prior to the merger or consolidation shall continue to own directly
or beneficially the outstanding Voting Stock of the surviving corporation
entitled to elect a majority of the Board of Directors of the surviving
corporation after giving effect to the merger or consolidation, or (v) during
any period of two consecutive years, the failure of those individuals who at the
beginning of such period constituted J. Baker's or the Company's Board of
Directors, as the case may be (together with any new directors whose election or
appointment by such Board or whose nomination for election or appointment by the
shareholders of J. Baker or the Company, as the case may be, was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), to constitute a majority of J. Baker's. or
the Company's Board of Directors, as the case may be, then in office; provided,
however, that in no event shall a foreclosure on any collateral pledged by J.
Baker or the Company in respect of obligations arising under or in connection
with the Credit Agreement constitute a Change of Control.
For purposes of this definition, (i) the terms "person" and
"group" shall have the meaning set forth in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
applicable, (ii) the term "beneficial owner" shall have the meaning set forth in
Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except
that a person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time or upon the occurrence of certain
events, and (iii) any "person" or "group" will be deemed to beneficially own any
voting stock of J. Baker or the Company so long as such person or group
beneficially owns, directly or indirectly, in the aggregate a majority of the
voting stock of a registered holder of the voting stock of J. Baker or the
Company, as the case may be.
7. Covenants Relating to the Note. The Company covenants and agrees that so
long as the Note shall be outstanding and, in the case of paragraphs (k) through
(q) below, so long as one million dollars ($1,000,000) of aggregate principal
amount of the Notes is outstanding:
(a) Maintenance of Office. The Company will maintain an office or agency in
such place in the United States of America as the Company may designate in
writing to the registered holder of this Note, where this Note may be presented
for registration of transfer and for exchange as herein provided, where notices
and demands to or upon the Company in respect of this Note may be served and
where this Note may be presented for payment. Until the Company otherwise
notifies the holder hereof, said office shall be the principal office of the
Company located at 55 Turnpike Street, Canton, Massachusetts 02021.
(b) Payment of Taxes. The Company will promptly pay and discharge or cause
to be paid and discharged, before the same shall become in default, all material
lawful taxes and assessments imposed upon the Company or any of its subsidiaries
or upon the income and profits of the Company or any of its subsidiaries, or
upon any property, real, personal or mixed, belonging to the Company or any of
its subsidiaries, or upon any part thereof by the United States or any State
thereof, as well as all material lawful claims for labor, materials and supplies
which, if unpaid, would become a lien or charge upon such property or any part
thereof; provided, however, that neither the Company nor any of its subsidiaries
shall be required to pay and discharge or to cause to be paid and discharged any
such tax, assessment, charge, levy or claim so long as both (x) the Company has
established adequate reserves for such tax, assessment, charge, levy or claim
and (y)(i) the Company or a subsidiary shall be contesting the validity thereof
in good faith by appropriate proceedings or (ii) the Company shall, in its good
faith judgment, deem the validity thereof to be questionable and the party to
whom such tax, assessment, charge, levy or claim is allegedly owed shall not
have made written demand for the payment thereof.
(c) Corporate Existence. The Company will do or cause to be done all things
necessary and lawful to preserve and keep in full force and effect (i) its
corporate existence and the corporate existence of each of its subsidiaries and
(ii) the material rights and franchises of the Company and each of its
subsidiaries under the laws of the United States or any state thereof, or, in
the case of subsidiaries organized and existing outside the United States, under
the laws of the applicable jurisdiction; provided, however, that nothing in this
paragraph (c) shall prevent the abandonment or termination of any rights or
franchises of the Company, or the liquidation or dissolution of, or a sale,
transfer or disposition (whether through merger, consolidation, sale or
otherwise) of all or any substantial part of the property and assets of, any
subsidiary or the abandonment or termination of the corporate existence, rights
and franchises of any subsidiary if such abandonment, termination, liquidation,
dissolution, sale, transfer or disposition is, in the good faith business
judgment of the Company, in the best interests of the Company and not
disadvantageous to the holder of this Note.
(d) Maintenance of Property. The Company will at all times maintain and
keep, or cause to be maintained and kept, in good repair, working order and
condition (reasonable wear and tear excepted) all significant properties of the
Company and its subsidiaries used in the conduct of the Business, and will from
time to time make or cause to be made all needful and appropriate repairs,
renewals, replacements, betterments and improvements thereto, so that the
Business may be conducted at all times in the ordinary course consistent with
past practice.
(e) Insurance. The Company will, and will cause each of its subsidiaries
to, (i) keep adequately insured, by financially sound and reputable insurers,
all property of a character usually insured by corporations engaged in the same
or a similar business similarly situated against loss or damage of the kinds
customarily insured against by such corporations and (ii) carry, with
financially sound and reputable insurers, such other insurance (including
without limitation liability insurance) in such amounts as are available at
reasonable expense and to the extent believed advisable in the good faith
business judgment of the Company.
(f) Keeping of Books. The Company will at all times keep, and cause each of
its subsidiaries to keep, proper books of record and account in which proper
entries will be made of its transactions in accordance with generally accepted
accounting principles consistently applied.
(g) Transactions with Affiliates. The Company shall not enter into, or
permit any of its subsidiaries to enter into, any transaction with any of its or
any subsidiary's officers, directors, employees or any person related by blood
or marriage to any such person or any entity in which any such person owns any
beneficial interest, except for (i) normal employment arrangements, benefit
programs and employee incentive option programs on reasonable terms, (ii) any
transaction approved by the Board of Directors of the Company, (iii) customer
transactions in the ordinary course of business and on arm's length terms and
(iv) the transactions contemplated by the Purchase Agreement.
(h) Notice of Certain Events. The Company shall, immediately after it
becomes aware of the occurrence of (i) any Event of Default (as hereinafter
defined) or any event which, upon notice or lapse of time or both, would
constitute such an Event of Default, or (ii) any action, suit or proceeding at
law or in equity or by or before any governmental instrumentality or agency
which, if adversely determined, would materially impair the right of the Company
to carry on its business substantially as now or then conducted, or would have a
material adverse effect on the properties, assets, financial condition,
prospects, operating results or business of the Company and its subsidiaries
taken as a whole, give notice to the holder of this Note, specifying the nature
of such event.
(i) Payment of Principal and Interest on the Note. The Company will use its
best efforts, subject to the provisions of applicable credit arrangements
(including the Credit Agreement), contractual obligations of the Company and/or
its subsidiaries and any applicable law restricting the same, to provide funds
from its subsidiaries to the Company, by dividend, advance or otherwise,
sufficient to permit payment by the Company of the principal of and interest on
this Note in accordance with its terms. Subject to any applicable provisions in
the Credit Agreement and documents executed and delivered in connection
therewith, the Company will not, and will not permit any subsidiary to, directly
or indirectly create or otherwise cause to exist any encumbrance or restriction
on the ability of any subsidiary to pay dividends or make any other
distributions to the Company or any wholly-owned subsidiary of the Company in
respect of its capital stock.
(j) Consolidation, Merger and Sale. The Company will not consolidate or
merge with or into, or sell or otherwise dispose of all or substantially all of
its property in one or more related transactions to, any other corporation or
other entity, unless:
(i) the Company is the surviving corporation or the entity
formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale or other
disposition shall have been made is a corporation
organized or existing under the laws of the United States
of any state thereof or the District of Columbia;
(ii) the surviving corporation or other entity (if other than
the Company) shall expressly and effectively assume in
writing the due and punctual payment of the principal of
and interest on this Note, according to its tenor, and the
due and punctual performance and observance of all the
terms, covenants, agreements and conditions of this Note
to be performed or observed by the Company to the same
extent as if such surviving corporation had been the
original maker of this Note;
(iii) the Company or such other corporation or other entity
shall not otherwise be in default in the performance
observance of any covenant, agreement or condition of this
Note or the Purchase Agreement; and
(iv) the holder of this Note shall have received, in connection
therewith, an opinion of counsel of the Company (or other
counsel satisfactory to the holder), in form and substance
satisfactory to the holder, to the effect that any such
consolidation, merger, sale or conveyance and any such
assumption complies with the provisions of clauses (i) and
(ii) of this paragraph (j).
Notwithstanding anything to the contrary herein, in no event shall a
foreclosure on any collateral pledged by the Company in respect of
obligations arising under or in connection with the Credit Agreement be
deemed to constitute a violation of the Company's obligatons pursuant
to this paragraph (j).
(k) Limitation on Indebtedness and Disqualified Stock. The Company will
not, and will not permit any of its subsidiaries to, (i) incur or permit to
remain outstanding any indebtedness for money borrowed ("Indebtedness"), except
(A) Senior Indebtedness (as defined in Section 13), (B) Indebtedness existing on
the date of original issuance of this Note, (C) Indebtedness permitted to be
incurred under the Credit Agreement as in effect from time to time after the
original issuance of this Note (other than Indebtedness that is subordinate or
junior in right of payment (to any extent) to any Senior Indebtedness and senior
or pari passu in right of payment (to any extent) to the Notes), or (D) in the
event that the Credit Agreement has terminated, Indebtedness permitted to be
incurred under any successor credit agreement of the Company with respect to
Senior Indebtedness, of if there exists no such credit agreement, such
Indebtedness as may be mutually agreed upon by the Company and the holders of a
majority of the aggregate principal amount of the Notes then outstanding, or
(ii) issue any capital stock ("Disqualified Stock") of the Company or any of its
subsidiaries which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures, or is mandatorily redeemable, whether pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to March 31, 2002.
(l) Restricted Payments. The Company will not, and will not permit any of
its subsidiaries to: (i) declare or pay any dividends on, or make any other
distribution or payment on account of, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, any shares of any in respect thereof, either
directly or indirectly, whether in cash, property or in obligations of the
Company or any of its subsidiaries, except for (X) distributions of shares of
the same class or of a different class of stock pro rata to all holders of
shares of a class of stock, or (Y) dividends, distributions or payment by any
subsidiary to the Company or to any wholly-owned subsidiary of the Company, or
(ii), except as permitted under the Credit Agreement, make any payments of
principal of, or retire, redeem, purchase or otherwise acquire any Indebtedness
other than any Senior Indebtedness of the Notes (such declarations, payments,
purchases, redemptions, retirements, acquisitions or distributions being herein
called "Restricted Payments").
(m) Limitation on Liens. The Company shall not, and shall not permit any of
its subsidiaries to, directly or indirectly, create, incur, assume or otherwise
cause or suffer to exist any lien, pledge , charge, security interest or
encumbrance (collectively, "Liens") on any asset now owned or hereafter
acquired, or on any income or profits therefrom or assign or convey any right to
receive income therefrom, except for (i) Liens permitted under the Credit
Agreement or securing any Senior Indebtedness, (ii) liens for current taxes not
yet due, (iii) landlord's liens, (iv) purchase money liens and (v) workman's,
materialman's, warehouseman's and similar liens arising by law or statute.
(n) Inspection of Property. The Company will permit the holder hereof to
visit and inspect any of the properties of the Company and any other
subsidiaries and their books and records and to discuss the affairs, finances
and accounts of any of such corporations with the principal officers of the
Company and such subsidiaries and their independent public accountants, all at
such reasonable times and as often as such holders may reasonably request.
(o) Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company shall not, and will not permit any of its subsidiaries
to, directly or indirectly, create, assume or suffer to exist any consensual
encumbrance or restriction on the ability of any subsidiary of the Company to
pay dividends or make other distributions on the capital stock of any subsidiary
of the Company or pay or satisfy any obligation to the Company or any of its
subsidiaries or otherwise transfer assets or make or pay loans or advances to
the Company or any of its subsidiaries, except encumbrances and restrictions
existing under (i) any applicable law or any governmental or administrative
regulation or order; (ii) restrictions with respect solely to a subsidiary of
the Company imposed pursuant to a binding agreement which has been entered into
for the sale or disposition of all or substantially all of the capital stock or
assets of such subsidiary, provided that such restrictions apply solely to the
capital stock or assets being sold of such subsidiary; (iii) restrictions
contained in any agreement relating to a person or real or tangible personal
property acquired after the date hereof which are not applicable to any person
or property, other than the person or property so acquired and which were not
put in place in connection with, or in contemplation of, such acquisition; (iv)
any agreement (other than those referred to in clause (iii)) of a person
acquired by the Company or a subsidiary of the Company, which restrictions
existed at the time of acquisition; (v) contractual encumbrances or restrictions
in effect on the date hereof and customary encumbrances and restrictions
contained in the security agreements related to the Credit Agreement and
encumbrances and restrictions contained in the Credit Agreement on the date
hereof as such encumbrances or restrictions may be amended, provided that such
encumbrances or restrictions as amended are not more restrictive in the
aggregate than those contained in the security agreements and the Credit
Agreement in effect on the date hereof; (vi) the Credit Agreement and the Notes;
(vii) indebtedness otherwise permitted to be incurred pursuant to Sections 7(k)
and 7(m) hereof; (viii) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the ordinary course of
business; or (ix) customary provisions restricting subletting or assignment of
any lease entered into the ordinary course of business.
(p) Limitation on Asset Sales and Issuance of Shares of Subsidiaries. The
Company shall not, and shall not permit any of its subsidiaries to, in one or a
series of related transactions, convey, sell, transfer, assign or otherwise
dispose of, directly or indirectly, any of its property, businesses or assets,
including by merger or consolidation or sale and leaseback transaction, and
including any sale or other transfer or issuance of any capital stock of any
subsidiary of the Company, whether the Company or its subsidiary (an "Asset
Sale"), unless (1)(a) within one year after the date of such Asset Sale, an
amount equal to the net cash proceeds therefrom (the "Asset Sale Offer Amount")
are applied to the optional redemption of the Notes in accordance with the terms
of Section 5(a) hereof to make an offer to purchase or to redeem the Notes with
the proceeds from asset sale, pro rate in proportion to the respective principal
amounts (or accreted values in the case of indebtedness issued with an original
issue discount) of the Notes or to the repurchase of the Notes pursuant to an
irrevocable, unconditional offer (an "Asset Sale Offer"), or (b)within one year
of such Asset Sale, the Asset Sale Offer Amount is used to permanently retire
Senior Indebtedness of the Company or indebtedness of any subsidiary of the
Company, and (2) the Board of Directors of the Company determines in good faith
that the Company or such subsidiary, as applicable, would receive fair market
value in consideration of such Asset Sale.
Notwithstanding the foregoing provisions of the prior
paragraph:
(i) The Company and its subsidiaries may, in the ordinary course of
business, convey, sell, lease, transfer, assign or otherwise dispose of
assets acquired and held for resale in the ordinary course of business;
(ii) The Company and its subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets pursuant to and in accordance
with Section 7(j) hereof;
(iii) The Company and its subsidiaries may sell or dispose of damaged, worn
out or other obsolete property so long as such property is no longer
necessary for the proper conduct of the business of the Company or such
subsidiary, as applicable;
(iv) The Company may sell or dispose of slow-selling or other inventory in
bulk; and
(v) The Company and its subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets to the Company or any of its
wholly-owned subsidiaries in accordance with the terms hereof.
Restricted Payments that are made in compliance with Section
7(1) hereof shall not be deemed to be Asset Sales.
Any Asset Sale Offer shall be made in compliance with all
applicable laws, rules, and regulations, including, if applicable, Regulation 14
E of the Exchange Act and the rules and regulations thereunder and all other
applicable Federal and state securities laws.
(q) Limitation on Subsidiary Guarantees. The Company shall not cause or permit
any of its subsidiaries, directly or indirectly, to guarantee, assume or in any
other manner become liable with respect to any indebtedness of the Company or
any of its subsidiaries (other than under the Credit Agreement).
8. Modification by Holders; Waiver. The Company may, with the written consent of
the holders of not less than a majority in principal amount of the Notes then
outstanding, modify the terms and provisions of this Note or the rights of the
holders of this Note or the obligations of the Company hereunder, and the
observance by the Company of any term or provision of this Note may be waived
with the written consent of the holders of not less than a majority in principal
amount of the Notes then outstanding; provided, however, that no such
modification or waiver shall:
(i) Change the maturity of any Note or reduce the principal amount thereof
or reduce the rate or extend the time of payment of interest thereon
without the consent of the holder of each Note so affected; or
(ii) give any Note any preference over any other Note, including, without
limitation, by amending the allocation provisions of Section 5(c)
hereof; or
(iii) reduce the percentage of principal amount outstanding under any Note,
the consent of the holder of which is required for any such
modification; or
(iv) amend the provisions of Section 13 hereof in any manner adverse to the
interests of the holder of this Note,
without the consent of the holder of each Note so affected.
Any such modification or waiver shall apply equally to each
holder of the Notes and shall be binding upon them, upon each future holder of
any Note and upon the Company, whether or not such Note shall have been marked
to indicate such modification or waiver, but any Note issued thereafter shall
bear a notation referring to any such modification or waiver. Promptly after
obtaining the written consent of the holders as herein provided, the Company
shall transmit a copy of such modification or waiver to the holders of the Notes
at the time outstanding.
9. Events of Default. If any one or more of the following events, herein
called "Events of Default," shall occur (for any reason whatsoever, and whether
such occurrence shall, on the part of the Company or any of its subsidiaries, be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of a court of
competent jurisdiction or any order, rule or regulation of any administrative or
other governmental authority) and such Event of Default shall be continuing:
(i) default shall be made in the payment of the principal of this Note when
and as the same shall become due and payable, whether at maturity or at
a date fixed for prepayment or repurchase (including default of any
optional prepayment in accordance with the requirements of Section 5 or
any Change of Control Payment in accordance with the requirements of
Section 6, as the case may be) or by acceleration or otherwise; or
(ii) default shall be made in the payment of any installment of interest on
this Note according to its terms when and as the same shall become due
and payable; or
(iii) default shall be made in the due observance or performance of any
covenant, condition or agreement on the part of the Company contained
herein in Section 7(j); or
(iv) default shall be made in the due observance or performance of any other
covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the terms hereof or of the Purchase
Agreement, and such default shall continue for 20 days after written
notice thereof, specifying such default and requesting that the same be
remedied; or
(v) any representation or warranty made by or on behalf of the Company
herein or in the Purchase Agreement shall prove to have been false or
incorrect in any material respect on the date on or as of which made;
or
(vi) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Company or any of its
subsidiaries in any involuntary case under the federal bankruptcy laws,
as now constituted or hereafter amended, or any other applicable
federal or state bankruptcy, insolvency or other similar laws, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or any of its
subsidiaries for any substantial part of any of their property or
ordering the winding-up or liquidation of any of their affairs and the
continuance of any such decree or order unstayed and in effect for a
period of 45 consecutive days; or
(vii) the commencement by the Company or any of its subsidiaries of a voluntary
case under the federal bankruptcy laws, as now constituted or hereafter
amended, or any other applicable federal or state bankruptcy, insolvency or
other similar laws, or the consent by any of them to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Company or any of its
subsidiaries for any substantial part of any of their property, or the
making by any of them of any general assignment for the benefit of
creditors, or the failure of the Company or of any of its subsidiaries
generally to pay its debts as such debts become due, or the taking of
corporate action by the Company or any of its subsidiaries in furtherance
of or which might reasonably be expected to result in any of the foregoing;
or
(viii) a default or an event of default as defined in any instrument
evidencing or under which the Company or any of its subsidiaries has
outstanding at the time any Indebtedness in excess of $500,000 in
aggregate principal amount shall occur and as a result thereof the
maturity of any such Indebtedness shall have been accelerated so that
the same shall have become due and payable prior to the date on which
the same would otherwise have become due and payable and such
acceleration shall not have been rescinded or annulled within 20 days;
or
(ix) final judgment (not reimbursed by insurance policies of the Company or
any of its subsidiaries) for the payment of money in excess of $500,000
shall be rendered against the Company or any of its subsidiaries and
the same shall remain undischarged for a period of 30 days during which
execution shall not be effectively stayed;
then the holders of at least 33-1/3% in aggregate principal amount of the Notes
at the time outstanding may, at their option, by a notice in writing to the
Company declare this Note to be, and this Note shall thereupon be and become
immediately due and payable together with interest accrued thereon, without
diligence, presentment, demand, protest or further notice of any kind, all of
which are expressly waived by the Company to the extent permitted by law.
At any time after any declaration of acceleration has been
made as provided in this Section 9, the holders of a majority in principal
amount of the Notes then outstanding may, by notice to the Company, rescind such
declaration and its consequences, provided, however, that no such rescission
shall extend to or affect any subsequent default or Event of Default or impair
any right consequent thereon.
Without limiting the foregoing, the Company hereby waives any
right to trial by jury in any legal proceeding related in any way to this Note
and agrees that any such proceeding may, if the holder so elects, be brought and
enforced in the Superior Court of the Commonwealth of Massachusetts for Suffolk
County or the United States District Court for the District of Massachusetts and
the Company hereby waives any objection to jurisdiction or venue in any such
proceeding commenced in such court. The Company further agrees that any process
required to be served on it for purposes of any such proceeding may be served on
it, with the same effect as personal service on it within the State of New York,
by registered mail addressed to it at its office or agency set forth in
paragraph (a) of Section 7 for purposes of notices hereunder.
10. Suits for Enforcement. Subject to the provisions of Section 13 of this
Note, in case any one or more of the Events of Default specified in Section 9 of
this Note shall happen and be continuing (subject to any applicable cure period
expressly set forth herein), the holder of this Note may proceed to protect and
enforce its rights by suit in equity, action at law and/or by other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Note or in aid of the exercise of any power granted in this
Note, or may proceed to enforce the payment of this Note or to enforce any other
legal or equitable right of the holder of this Note.
In case of any default under this Note, the Company shall pay
to the holder hereof reasonable collection costs and reasonable attorneys' fees,
to the extent actually incurred.
11. Remedies Cumulative. No remedy herein conferred upon the holder of this
Note is intended to be exclusive of any other remedy and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
12. Remedies Not Waived. No course of dealing between the Company and the
holder of this Note or any delay on the part of the holder hereof in exercising
any rights hereunder shall operate as a waiver of any right of the holder of
this Note.
13. Subordination. (a) Anything contained in this Note to the contrary
notwithstanding, the indebtedness evidenced by the Notes shall be subordinate
and junior, to the extent set forth in the following paragraphs (A), (B), (C)
and (D), to all Senior Indebtedness of the Company. "Senior Indebtedness" shall
mean the principal of, premium, if any, and interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all reasonable fees,
reimbursement and indemnity obligations, and all other obligations arising in
connection with, any indebtedness for borrowed money of the Company, contingent
or otherwise, now outstanding or created, incurred, issued, assumed or
guaranteed in the future, for which, in the case of any particular indebtedness,
the instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such indebtedness shall not be subordinate
in right of payment to any other indebtedness of the Company. Without limiting
the generality of the foregoing, Senior Indebtedness shall include all
Obligations (under and as defined in the Credit Agreement); notwithstanding the
foregoing, Senior Indebtedness shall include only such Obligations until such
time as the same are paid in full in cash and all obligations to provide
financial accommodations under the Credit Agreement have terminated. For
purposes of this Note, "Credit Agreement" shall mean the Loan and Security
Agreement, dated as of May 19, 1999, by and among BankBoston Retail Finance
Inc., as Administrative Agent and as Collateral Agent (collectively, the
"Agent"); BankBoston Retail Finance Inc., as "Working Capital Lender"; Back Bay
Capital Funding LLC and the Company, as the same may be amended, from time to
time thereafter, together with any agreement entered into in connection with the
restatement, renewal, extension, restructuring, refunding or refinancing of the
Liabilities (under and as defined in the Credit Agreement), together with any
agreement entered into with any person which provides revolving or term credit
to replace or supplement the "Revolving Credit" and the "Term Loan" within the
meaning of the Credit Agreement.
(A) In the event of any insolvency, bankruptcy,
liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to the
Company or its creditors or its property, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up
of the Company, whether or not involving insolvency or bankruptcy
proceedings, then all Senior Indebtedness shall first be paid in full
in cash, before any payment, whether on account of principal, interest
or otherwise, is made upon the Notes.
(B) In any of the proceedings referred to in
paragraph (A) above, any payment or distribution of any kind or
character, whether in cash, property, stock or obligations which may be
payable or deliverable in respect of the Notes shall be paid or
delivered directly to the holders of Senior Indebtedness for
application in payment thereof, unless and until all Senior
Indebtedness shall have been paid in full in cash.
(C) No payment shall be made, directly or indirectly,
on account of the Notes (i) upon maturity of any Senior Indebtedness
obligation, by lapse of time, acceleration (unless waived), or
otherwise, unless and until all principal thereof and interest thereon
and all other obligations in respect thereof shall first be paid in
full in cash and all obligations to provide financial accommodations
under the Credit Agreement have terminated, or (ii) upon the happening
of any default in payment of any principal of, premium, if any, or
interest on or any other amounts payable in respect of Senior
Indebtedness when the same becomes due and payable whether at maturity
or at a date fixed for prepayment or by declaration or otherwise (a
"Senior Payment Default"), unless and until such Senior Payment Default
shall have been cured or waived or shall have ceased to exist.
(D) Upon the happening of an event of default or any event or
circumstance with respect to any Senior Indebtedness permitting (after
notice or lapse of time or both if required, otherwise immediately) one
or more holders of such Senior Indebtedness (or, in the case of the
Credit Agreement, the Agent or any other person having the power to do
so) to declare such Senior Indebtedness due and payable prior to the
date on which it is otherwise due and payable or to suspend the
providing of credit to the Company pursuant to the Credit Agreement (a
"Non-monetary Default"), upon the occurrence of (i) receipt by the
holders of the Notes of written notice from the holders of said Senior
Indebtedness (or, in the case of the Credit Agreement, the Agent) of a
Non-monetary Default (any such notice, a "Blockage Notice"), or (ii) if
such Non-monetary Default results from the acceleration of the Notes,
the date of such acceleration; then (x) the Company shall not make,
directly or indirectly, to the holder of the Notes any payment of any
kind of or on account of all or any part of the Notes; (y) the holders
of the Notes shall not accept from the Company any payment of any kind
of or on account of all or any part of the Notes and (z) the holders of
the Notes may not take, demand, receive, sue for, accelerate or
commence any remedial proceedings with respect to any amount payable
under the Notes, unless and until in each case described in clauses
(x), (y) and (z) all such Senior Indebtedness shall have been paid in
full in cash; provided, however, that if such Nonmonetary Default shall
have occurred and be continuing for a period (a "Blockage Period")
commencing on the earlier of the date of receipt of such Blockage
Notice or the date of the acceleration of the Notes and ending 179 days
thereafter (it being understood that not more than one Blockage Period
may be commenced with respect to the Notes during any period of 90
consecutive days), and during such Blockage Period (i) such
Non-monetary Default shall not have been cured or waived, (ii) the
holder of such Senior Indebtedness (or, in the case of the Credit
Agreement, the Agent) shall not have made a demand for payment and
commenced an action, suit or other proceeding against the Company and
(iii) none of the events described in subsection (A) above shall have
occurred, then (to the extent not otherwise prohibited by subsections
(A), (B) or (C) above) the Company may, not less than 10 days after
receipt by the holders of such Senior Indebtedness or the Agent, as the
case may be, of written notice to such effect from the holders of the
Notes, make and the holders of the Notes may accept from the Company
all past due and current payments of any kind of or on account of the
Notes, and such holder may demand, receive, retain, sue for or
otherwise seek enforcement or collection of all amounts payable on
account of principal of or interest on the Notes. Any such payments
made by the Company upon lifting of the Blockage Period shall cure any
payment default hereunder.
(b) Subject to the payment in full in cash of all Senior Indebtedness as
aforesaid, the holders of the Notes shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of any kind
or character, whether in cash, property, stock or obligations, which may be
payable or deliverable to the holders of Senior Indebtedness, until the
principal of, and interest on, the Notes shall be paid in full in cash, and, as
between the Company, its creditors other than the holders of Senior
Indebtedness, and the holders of the Notes, no such payment or distribution made
to the holders of Senior Indebtedness by virtue of this Section 13 which
otherwise would have been made to the holder of the Notes shall be deemed a
payment by the Company on account of the Senior Indebtedness, it being
understood that the provisions of this Section 13 are and are intended solely
for the purposes of defining the relative rights of the holders of the Notes, on
the one hand, and the holder of the Senior Indebtedness, on the other hand.
Subject to the rights, if any, under this Section 13 of holders of Senior
Indebtedness to receive cash, property, stock or obligations otherwise payable
or deliverable to the holders of the Notes, nothing herein shall either impair,
as between the Company and the holder of the Notes, the obligation of the
Company, which is unconditional and absolute, to pay to the holder thereof the
principal thereof and interest thereon in accordance with its terms or prevent
(except as otherwise specified therein) the holders of the Notes from exercising
all remedies otherwise permitted by applicable law or hereunder upon default
hereunder.
(c) If any payment or distribution of any character or any security,
whether in cash, securities or other property, shall be received by any holders
of the Notes in contravention of any of the terms hereof or before all the
Senior Indebtedness obligations have been paid in full in cash and all
obligations to provide financial accommodations under the Credit Agreement have
terminated, such payment or distribution or security shall be received in trust
for the benefit of, and shall be paid over or delivered and transferred to, the
holders of the Senior Indebtedness at the time outstanding in accordance with
the priorities then existing among such holders for application to the payment
of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
such Senior Indebtedness in full in cash. In the event of the failure of any
such holder to endorse or assign any such payment, distribution or security,
each holder of any Senior Indebtedness is hereby irrevocably authorized to
endorse or assign the name.
(d) The rights under these subordination provisions of the holders of any
Senior Indebtedness as against any holders of the Notes shall remain in full
force and effect without regard to, and shall not be impaired or affected by:
(i) any act or failure to act on the part of the Company; or
(ii) any extension or indulgence in respect of any payment or prepayment of
any Senior Indebtedness or any part thereof or in respect of any other
amount payable to any holder of any Senior Indebtedness; or
(iii) any amendment, modification or waiver of, or addition or supplement to,
or deletion from, or compromise, release, consent or other action in
respect of, any of the terms of any Senior Indebtedness or any other
agreement which may be made relating to any Senior Indebtedness; or
(iv) any exercise or non-exercise by the holder of any Senior Indebtedness
of any right, power, privilege or remedy under or in respect of such
Senior Indebtedness or these subordination provisions or any waiver of
any such right, power, privilege or remedy or of any default in respect
of such Senior Indebtedness or these subordination provisions or any
receipt by the holder of any Senior Indebtedness of any security, or
any failure by such holder to perfect a security interest in, or any
release by such holder of, any security for the payment of such Senior
Indebtedness; or
(v) any merger or consolidation of the Company or any of its subsidiaries
into or with any other person, or any sale, lease or transfer of any or
all of the assets of the Company or any of its subsidiaries to any
other person; or
(vi) absence of any notice to, or knowledge by, any holder of any claim
hereunder of the existence or occurrence of any of the matters or
events set forth in the foregoing clauses (i) through (v); or
(vii) any other circumstance.
(e) The holders of the Notes unconditionally waive (i) notice of any of the
matters referred to in Section 13(d); (ii) all notices which may be required,
whether by statute, rule of law or otherwise, to preserve intact any rights of
any holder of any Senior Indebtedness, including, without limitation, any
demand, presentment and protest, proof of notice of nonpayment under any Senior
Indebtedness or the Credit Agreement, and notice of any failure on the part of
the Company to perform and comply with any covenant, agreement, term or
condition of any Senior Indebtedness, (iii) any right to the enforcement,
assertion or exercise by any holder of any Senior Indebtedness of any right,
power, privilege or remedy conferred in such Senior Indebtedness or otherwise,
(iv) any requirements of diligence on the part of any holder of any of the
Senior Indebtedness, (v) any requirement on the part of any holder of any Senior
Indebtedness to mitigate damages resulting from any default under such Senior
Indebtedness and (vi) any notice of any sale, transfer or other disposition of
any Senior Indebtedness by any holder thereof.
(f) The obligations of the holder under these subordination provisions
shall continue to be effective, or be reinstated, as the case may be, if at any
time any payment in respect of any Senior Indebtedness, or any other payment to
any holder of any Senior Indebtedness in its capacity as such, is rescinded or
must otherwise be restored or returned by the holder of such Senior Indebtedness
upon the occurrence of any proceeding referred to in paragraph 13(a)(A) or upon
or as a result of the appoint of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Company or any substantial part of its
property or otherwise, all as though such payment had not been made.
(g) Notwithstanding anything to the contrary herein, the Company shall not
at any time offer (and the holder hereof shall not at any time accept) (i) any
pledge of collateral or (ii) any guaranty by any parent or subsidiary of the
Company, in each case with respect to the obligations of the Company under this
Note.
14. Covenants Bind Successors and Assigns. All the covenants, stipulations,
promises and agreements in this Note contained by or on behalf of the Company
shall bind its successors and assigns, whether so expressed or not.
15. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York.
16. Headings. The headings of the sections and paragraphs of this Note are
inserted for convenience only and do not constitute a part of this Note.
17. Third Party Beneficiaries. The provisions of Section 13 are intended to
be for the benefit of, and shall be enforceable directly by each holder of, the
Senior Indebtedness.
IN WITNESS WHEREOF, JBI Apparel, Inc. has caused this Note to
be signed in its corporate name by one of its officers thereunto duly authorized
and to be dated as of the day and year first above written.
JBI APPAREL, INC.
By: /s/ Philip Rosenberg
Name: Philip Rosenberg
Title: Executive Vice President